No, it's not a lie that the administration said universities should hire and admit students based on merit. The administration's letter is linked from the university's statement. You can go read it. It's the very first two points.

It's true they also said they want viewpoint diversity quotas and audits. I agree that goes too far. I think they would probably give that up if the university pushed back. This is what Trump does every time - make outlandish demands so you have something to give up in negotiation. He even wrote an entire book telling you exactly that's what he does, yet somehow the "intellectual elite" cannot wrap their heads around a very simple negotiating tactic. Every plumber, electrician, and carpenter that ever worked with Trump figured this out decades ago.